Rio Tinto shares fall on FY23 earnings decline and dividend cut

Investors have responded poorly to the miner's full year results.

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Rio Tinto Ltd (ASX: RIO) shares are falling on Thursday morning after investors responded negatively to the miner's full-year results.

At the time of writing, the mining giant's shares are down 2% to $123.08.

Rio Tinto shares fall on results release

For the 12 months ended 31 December, Rio Tinto reported a 3% decline in revenue to US$54,041 million and a 9% reduction in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to US$23,892 million.

The latter was a touch short of the consensus estimate of US$24,024 million.

This appears to have overshadowed Rio Tinto's underlying earnings of US$11.8 billion and US$2.58 per share final dividend, which were either in line or a touch better than expected.

For the full year, Rio Tinto's dividend came in at US$4.20 per share, which is down 12% year on year.

Commenting on the result, Goldman Sachs said:

RIO reported 2023 underlying EBITDA/NPAT of US$23.9bn/US$11.8bn, in-line with our estimates and Visible Alpha Cons. The company generated an average ROCE of 20% in the year and generated nearly US$8bn of FCF. While all divisions were broadly in-line, there was a decent reduction in Primary aluminium costs. The final dividend of US$2.58/sh (75% payout) was in-line with our US$2.59 estimate taking the FY payout to 60%, at the top end of the 40-60% policy. Net debt of US$4.2bn was above our US$2.9bn estimate due to differences in leases and other investments. Capex came in at US$7.1bn in-line with guidance.

Should you invest?

Goldman believes that the Rio Tinto share price is good value at the current level.

Its analysts have retained their buy rating with a trimmed price target of $138.30. This implies potential upside of 12% based on where it trades today.

In addition, the broker is forecasting a US$4.40 per share dividend in FY 2024. This represents an attractive fully franked 5% dividend yield, bringing the total potential return to 17%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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